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Turn That Screw a Little Tighter

Posted by Larry Doyle on March 10, 2009 6:30 PM |

The screwing that Americans have taken on the development and marketing of the scam known as Auction Rate Preferred Securities (ARPS) continues. I have written at length on how the regulatory body, FINRA, actually owned $650 million in these screwsecurities at calendar year end 2006. I have persistently questioned how a regulatory body could possibly own a security which was knowingly mismarketed. Was FINRA negligent, complicit, or both? Did FINRA liquidate its position prior to the market imploding on all other owners? While many institutional owners of ARPS have been made whole, many retail clients are still left holding the bag.

Well, the screw that is ARPS just got turned another notch tighter. It turns out that the issuers of ARPS (municipalities, hospitals, colleges and universities, et al) are contractually obligated to pay an ongoing underwriting fee to the Wall Street banks despite the fact that these regularly scheduled auctions no longer occur.

What did that underwriting fee amount to in the last year? A cool $211 million. While the issuers pay, who do you think really pays? Taxpayers Billed $211 Million in Auction-Rate Failure. That’s me and you!!

Meanwhile, the outfit that is supposed to police the market and the products sold in order to protect investors just so happened to have a $650 million position in these bonds. I wrote¬†Let’s Really Question Ms. Schapiro, as she was the leader of FINRA when they had that position and is now the head of the SEC!! Is it any wonder why so many investors have lost such confidence in our markets. And still we pay!! The pain and indignity of this travesty with ARPS is just as great as the monetary fee charged.

What happened to FINRA’s bonds?? Do they still own them? If not when did they sell? To whom?? What price??


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